The Causes of Action Affected by the Dismissal of the Corporate
The Causes of Action in the Amended Counterclaim which assert
claims on behalf of Western, and which are therefore dismissed,
are the First, Third, Seventh, Ninth, Tenth and Thirteenth. The
First is based on CITC's alleged failure to perform under the
Agreement and its subsequent attempts to conceal the breach.
Both the Third and Seventh causes of action relate to
dealings between Western and a third party, Phibro Energy, Inc.
("Phibro"). In the Third, the Zanders allege that CITC's breach
of the Agreement prevented Western from satisfying its
obligations to Phibro, which resulted in a lawsuit by Phibro in
which Phibro sought to hold the Zanders personally liable for
Western's default. The damages alleged are the costs of
defending this lawsuit. However, the fact that the damages may
have been suffered by the Zanders personally is irrelevant to
the issue of whether they may pursue CITC for breach of the
Agreement. The Seventh counterclaim alleges that CITC's
misrepresented Phibro's experience and ability to deal with
Western and also that CITC had no experience in the type of
transactions required by the Agreement. Again, this is simply
a claim that CITC did not properly perform its duties under the
The Ninth counterclaim is essentially the same as the First,
with additional allegations based on Zander's asserted position
as the first American Black to have been awarded a crude oil
contract by a major petroleum exporting nation. As this
counterclaim is based on CITC's breach of the Agreement, it
must be dismissed.
Finally, the Tenth counterclaim is based on a breach of
warranty in connection with the Agreement, and as such must
also be dismissed.
Therefore, the First, Third, Seventh, Ninth and Tenth
counterclaims must be dismissed.
In addition, the Zanders' Eighth counterclaim alleges
primarily that CITC fraudulently concealed its breach of the
Agreement. To the extent that this claim alleges facts which
might establish motive for fraudulent inducement of the Note it
is appropriate, but insofar as it states a claim for recovery
on the underlying breach it must be dismissed.
The Second Counterclaim States a Valid Claim for Fraudulent
In their Second counterclaim, the Zanders assert that CITC
concealed its previous breach of the Agreement in order to
induce the Zanders to sign the Note and thereby personally
guarantee payment of the damages which Western suffered as a
result of CITC's breach. They also allege that CITC
fraudulently attempted to extract indemnifications and releases
from them by representing that it intended to continue doing
business with Western, and that there were certain conditions
placed upon their execution of the Note which CITC has not
CITC argues that this counterclaim does not allege fraud with
the particularity required by Rule 9(b). More precisely, CITC
asserts that the counterclaim does not plead scienter, pointing
to three of the paragraphs which contain conclusory assertions
concerning CITC's knowledge at the time of the alleged fraud.
However, CITC's argument ignores the numerous allegations in
the paragraphs preceding the admittedly conclusory allegations,
which contain adequate factual detail to support the knowledge
ascribed to CITC:
26. On or about July 1987, Alan Weiss, President
of CITC . . . performed an investigation and
detailed audit of the Citibank letter of credit
department to ascertain responsibility for the
problems with the issuing of the letters of
27. The investigation specifically identified
Citibank as the cause of all problems. . . . Mr.
Weiss communicated the results of his
investigation to Mr. Gerald V. Horah, a vice
president of both CITC and Citibank, as well as to
more senior officers of Citibank.
39. On or about July 1987, Gerald V. Horah
learned of the breach of Citibank
but was specifically instructed not to reveal the
results of the investigation and audit of the
Citibank letter of credit department to
40. On or about July 1987, Gerald V. Horah and
other employees of CITC were specifically
threatened by Mr. Weiss that their careers with
the Citibank organization depended upon Defendants
never finding out about the problem with the
letters of credit.
41. On or about July 1987, Mr. Horah and others
were ordered to cooperate with "the Bank" in
getting the Defendants to both personally
guarantee all funds advanced by Citibank and to
indemnify Plaintiff and all of its affiliates
against prosecution for its negligence in failing
to facilitate the now aborted transaction should
said negligence ever be discovered by Defendants
in the future.
Amended Counterclaim at 7-11. These allegations are all quite
specific as to how and when CITC acquired the knowledge in
question. Therefore, the fraud claim adequately pleads scienter
and will not be dismissed.